VZCZCXYZ0004
RR RUEHWEB

DE RUEHVI #1961/01 1841117
ZNR UUUUU ZZH
R 031117Z JUL 06
FM AMEMBASSY VIENNA
TO RUEHC/SECSTATE WASHDC 4088
INFO RUEAWJA/DEPT OF JUSTICE WASHDC
RUCPDOC/USDOC WASHDC
RUEHBS/USEU BRUSSELS

UNCLAS VIENNA 001961 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EB/TTP/MTA/IPC 
STATE ALSO PASS USTR AND FTC/JOHN J. PARISI 
USDOC FOR ITA 
USDOC FOR 4212/MAC/EUR/OWE/PDACHER 
DOJ/RLARM 
 
E.O. 12958: N/A 
TAGS: ECIN EIND AU
SUBJECT: Austria's New Takeover Regulations 
 
 
Summary 
------- 
 
¶1.  Austria's Parliament has passed two takeover laws to 
implement the EU's Takeover Directive and to rectify 
problems with Austria's previous Takeover Law.  An 
Amendment to the Austrian Takeover Act of 1998 
incorporates Article 9 of the EU's Takeover Directive 
prohibiting defensive action to frustrate bids. Austria 
opted out of Article 11 of the Directive's breakthrough 
regulations, but the Austrian legislation allows 
individual companies to address these in company bylaws. 
The amendment also introduces a 30% threshold for 
requiring a takeover bid for all shares and provides 
precise regulations for obtaining a controlling 
shareholding stake passively, such as when a large 
investor sells shares.  The Shareholder Exclusion Act 
implements Article 15 of the EU's Takeover Directive, 
allowing a primary shareholder, with at least 90% of 
capital stock, to "squeeze out" minority shareholders. 
The new takeover regulations improve further the 
favorable investment climate for foreign firms in 
Austria.  End Summary. 
 
 
New Takeover Regulations in Austria 
----------------------------------- 
 
¶2.  Parliament's plenary has passed the GoA's bill to 
amend the Austrian Takeover Act of 1998, as well as a new 
Shareholder Exclusion Law.  The takeover amendment 
implements the EU Takeover Directive 2004/25/EC.  By 
introducing a "safe harbor" regulation, the amendment 
addresses Austrian Constitutional Court concerns 
resulting from a case, in which regulations forced a 
shareholder to make a takeover bid, even though he had 
not obtained additional shares.  The new regulations have 
been effective since May 20. 
 
 
No Defensive Action or "Poison Pills" 
------------------------------------- 
 
¶3.  The GoA did not opt out of Article 9 of the EU's 
Takeover Directive dealing with defensive action 
following a takeover bid.  Paragraph 12 of Austria's 
Takeover Act prohibits the board of a target company from 
taking measures to frustrate a bid.  It also requires 
shareholder approval for any defensive action, except for 
soliciting alternative bids.  A general shareholders' 
meeting must approve any extraordinary decisions a 
company's board takes before it formally receives 
information about an intended bid, and if the decision 
could potentially frustrate a takeover bid.  The general 
shareholders meeting must approve each specific measure. 
It is not possible to issue a blanket, "in reserve" 
approval in advance. 
 
 
Breakthrough Regulated in Corporations' Bylaws 
--------------------------------------------- - 
 
¶4.  Austria opted out of Article 11 of the EU Directive, 
thereby not regulating breakthrough provisions in the 
law.  However, Paragraph 27a of the Austrian Takeover Act 
allows corporations the option to address breakthrough 
provisions through company bylaws.  Such bylaws may 
stipulate that, in the event the company becomes a 
takeover target, paragraph 27a, which otherwise conforms 
to Article 11 of the EU Directive, applies.  Bylaws may 
also set a lower-than-normal threshold for a mandatory 
takeover bid, at below 30%. 
 
¶5.  The GoA deferred breakthrough regulations to the 
company level, because Austria has few obstacles to 
takeovers.  Austria has no multiple-vote shares.  By 
highlighting favorable company bylaws, a company can 
present itself as an attractive takeover candidate.  All 
shareholders, with the right to delegate board members, 
have to approve such changes to bylaws.  Companies must 
notify the Austrian Takeover Commission and the 
supervisory authorities of all member states where the 
shares are listed on the regulated market of such 
changes.  Following a bid, an individual holding 75% or 
more of the shares with voting rights can call a general 
shareholders' meeting to push through his interest, such 
as amending the bylaws or removing or appointing board 
members. 
 
 
"Safe Harbor" Regulation - 30% Threshold for Bids 
--------------------------------------------- ---- 
 
¶6.  The revised Paragraph 22 of the Austrian Takeover Act 
stipulates a threshold of more than 30% in direct or 
indirect control of a company's voting shares for 
triggering the requirement to make a takeover bid for all 
shares.  This replaces the flexibly interpreted 
controlling stake definition and provides a "safe harbor" 
for shareholders with less than 30% (particularly a 25% 
blocking minority) from a mandatory bid obligation.  A 
shareholder obtaining a direct or indirect controlling 
stake of more than 30% has to notify the Takeover 
Commission immediately and make a bid in accordance with 
the provisions of the Takeover Act for all shares of that 
company within 20 trading days. 
 
¶7.  The new regulations provide precise guidelines on the 
formation or dissolution of a group of shareholders, or 
of changes to the group.  For example, the formation of a 
group, particularly a syndicate contract, triggers an 
obligation to submit a takeover bid, if the group acts in 
concert and together holds a controlling 30% stake. 
 
¶8.  The law also includes new regulations for determining 
the price of a takeover bid.  Pursuant to the EU Takeover 
Directive's requirement for equal treatment of all 
shareholders of a target company, the Austrian 
regulations cover both mandatory and voluntary takeover 
bids.  The new legislation reduces the period for 
determining the minimum price from a twelve- to a six- 
month average.  The new law eliminates a current 
provision allowing for a possible discount of up to 15% 
of this average price. 
 
 
Obtaining a Controlling Stake Passively 
--------------------------------------- 
 
¶9.  Special new regulations will apply to shareholders 
who passively obtain a controlling stake in a company. 
(This would occur not by buying additional shares, but 
because another large shareholder reduced his 
shareholding.)  The new law does not require shareholders 
who obtain a controlling stake passively to submit a 
takeover bid.  In such a scenario, the shareholder with 
an increased stake of at least 30% of the voting shares 
has three options: a) accept a restriction in voting 
rights to 26%, just above a 25% blocking minority; b) 
sell shares in excess of 26%; or c) make a takeover bid. 
If the controlling shareholder buys additional shares, 
the obligation to make a bid for all shares of the 
company automatically applies.  The Takeover Commission 
may waive the restriction of voting rights to 26%, but 
not in excess of 30%, in exchange for other conditions 
providing an equivalent protection for other 
shareholders. 
 
 
"Squeeze Out" of Minority Shareholders 
-------------------------------------- 
 
¶10.  A new Austrian Shareholder Exclusion Act implements 
Article 15 of the EU's Takeover Directive and allows for 
a "squeezing out" of minority shareholders after a 
takeover.  The primary shareholder, holding at least 90% 
of the capital stock including preferred non-voting 
shares, may call a general shareholders' meeting to 
require that minority shareholders transfer their shares 
in exchange for an appropriate cash value.  Shares held 
by an affiliate company of the main shareholder for at 
least one year will count towards determining the 90% 
threshold.  A company's bylaws may exclude the "squeeze 
out" provision or determine a threshold higher than 90%. 
All shareholders have to approve changes in such bylaw 
provisions, unless the bylaws otherwise state. 
 
MCCAW